Cryptocurrency Software Wallet Methodology

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Cryptocurrency Software Wallet Methodology

One of the most crucial things to consider before transacting in and storing cryptocurrency is the availability of a good crypto wallet. We completed a thorough assessment of the top cryptocurrency software wallets to assist you in selecting the best wallet for you.

Our assessment approach is based on a quantitative scoring model that prioritizes critical variables such as security, affordability, privacy, usability, customer service, and functionality. For each of the 19 organizations we looked at, our team of researchers collected over 40 data points and did significant research. Our team of writers, all of whom are professionals in this sector, then test drove each wallet to provide a qualitative opinion.

Our approach prioritized organizations with the best security procedures and reputations. Companies with advanced features, such as compatibility for a wide range of crypto assets, the ability to sync with hardware wallets, and fee customization, also performed well.

Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly speculative and dangerous, and markets may be quite volatile. Before making any financial choices, get the advice of a trained specialist. Investopedia or the author make no suggestion to invest in cryptocurrencies, nor can the accuracy or timeliness of the material be guaranteed.

The Review Process

We established a detailed ranking system based on a range of parameters that are critical in analyzing the safety and performance of these products in order to deliver the best information to customers seeking for a bitcoin software wallet.

We established a quantitative methodology that ranks each firm based on 6 primary categories and 37 attributes by integrating industry research, subject matter knowledge, and customer survey data. We employed a dynamic scoring technique. In certain cases, binary scores were assigned a 0 for the poorest possible score and a 1 for the greatest possible score. The range of the original number was then rescaled such that the smallest value is 0.000 and the maximum value is 1.000 in other circumstances where scoring was continuous.

Data Collection

We gathered thorough information on 19 notable bitcoin software wallet firms using an online data collecting method as well as direct corporate phone and email contact across 26 score categories, for a total of 570 data points. In addition, we polled 926 prospective customers that are interested in owning a cryptocurrency wallet in the future.

We established the following category weights based on a mix of consumer survey findings and subject field expertise:

  • Security(28.43%)
  • Cost (12.50%)
  • Privacy and Anonymity (17.63%)
  • Usability(10.50%)
  • Customer Support(11.76%)
  • Features(19.18%)

The six categories and 26 elements that comprise our grading methodology for comparing firms are as follows:

Security

  • Account Access Method (5.73%)
  • Method of Transaction Authorization (4.79%)
  • Recovery Method (5.01%)
  • Reputation (5.52%)
  • Deterministic Hierarchical (3.23%).
  • Open Source Code (3.97%)

Cost and Fees

  • Fee for device/account (once) (2.08%)
  • Send (recurring) Fee (2.08%)
  • 2.08 percent recurring fee
  • Can Customize Fee (6.25%)

Privacy and Anonymity

  • KYC (3.96%)
  • Method of Transaction Anonymization (4.96%)
  • CoinJoin-Enabled (4.05%)
  • New Address Generated (4.66%)

Usability

  • Hardware Compatibility (4.90%)
  • Cross-platform (5.60%)

Customer Support

  • 24/7 Customer Support (7.74%)
  • (4.01% of all support channels)

Features

  • Number of supported currencies (2.67%)
  • Fiat Funding Available (2.10%)
  • Frequency of Update (2.18%)
  • Earn interest on your cryptocurrency holdings (2.82%).
  • Staking Option (2.19%)
  • Can Buy Crypto (2.85%)
  • Can Sell Crypto (2.41%)
  • Can swap/exchange/convert cryptocurrency to cryptocurrency (1.95%)

Security

There are several types of software cryptocurrency wallets. Users may access their wallets through cryptocurrency exchanges, download a software package to their computer desktop, or even utilize a smartphone app. Software wallets are referred to as “hot wallets” since each of these alternatives connects a user’s public and private keys to the Internet. As a consequence, there is a greater chance of a user’s cash being stolen than with hardware wallets that provide “cold” offline storage of crypto assets.

In our assessment, this area contributes for 28.43% of the overall weighted score.

Account Access Method

We investigated whether or not multiple forms of authentication (MFA) are necessary to access user accounts while investigating the methods by which each wallet may be accessed.

Wallets that required MFA scored a 1, while those that did not need multiple forms of verification received a 0. This number accounts for 5.73% of our total star ratings.

Transaction Authorization Method

We also investigated the security-related step(s) needed to approve transactions when transmitting from each wallet.

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Wallets with multisig authorisation earned a 1, while those without multisig authorization received a 0. These ratings account for 4.97% of our total star rating.

Recovery Method

The recovery phrase is a critical component of a crypto wallet’s security. If you lose access to your account for any reason, a seed phrase is essential for the recovery and protection of your wallet.

A score of 1 is given to wallets that supply a seed phrase to assist users in recovering their accounts, while a score of 0 is assigned to wallets that do not provide a seed phrase. This number accounts for 5.01% of our total star ratings.

Reputation

When it comes to bitcoin wallets, reputation is important, just as it is in any business where asset protection is a top priority. That’s why our team of researchers delved deep to evaluate the amount of security breaches, hacks, and other incidents that each organization we looked at may have had in the last five years, based on news stories.

This item was graded on a continuous scale of 0.000 to 1.000, rather than a binary scale of 0/1. We then used inverted scoring to assign a low score to organizations who had a big number of security breaches and a high score to companies that had a small number of breaches. This number accounts for 5.52% of our total star ratings.

Hierarchical Deterministic

When it comes to keeping your wallet from being hacked, hierarchical deterministic wallets provide an additional degree of safety. As a result, wallets with hierarchical deterministic processes obtained a score of 1, whereas wallets without hierarchical deterministic procedures received a score of 0. This number accounts for 3.23% of our total star ratings.

Open Source Code

Open source wallets use computer code that is open to peer review. Open source wallets encourage programmers to analyze and change code in order to correct issues and make other improvements via community interaction, trust, and permissive license. In summary, open source wallets provide more transparency.

Wallets with reviewable and open code scored a 1, whereas wallets without open source code received a 0. This number accounts for 3.97% of our total star ratings.

Features

During your search for the best cryptocurrency software wallet for you, you’ll want to ensure that the wallet you pick provides the functionality you want.

In our assessment, this area accounted for 19.18% of the overall weighted score.

Number of Currencies Supported

The quantity of supported currencies might be quite important to seasoned bitcoin aficionados. At the same hand, people just getting started with cryptocurrencies or who use it infrequently may not need access to a diverse selection of digital assets.

A score of 1 was assigned to wallets that support two or more cryptocurrencies, while a score of 0 was assigned to single-asset wallets. This number accounts for 2.67% of our total star ratings.

Fiat Funding Available

Fiat money is a currency issued by the government that is not backed by a commodity such as gold. Methods for financing bitcoin wallets with fiat cash include wire and bank wire transfers, ACH, Apple Pay, Google Pay, credit cards, and debit cards.

While reviewing the availability of funding methods, we assigned a score of 1 to wallets that had available fiat funding ways and a score of 0 to wallets that did not have any fiat funding methods. This number accounts for 2.10% of our total star ratings.

Frequency of Update

We also analyzed how often each wallet was updated as part of our modeling methodology.

We assigned a score of 1 to wallets with the most frequent update and repair schedules, a score of 0.50 to wallets with less regular updates, and a score of 0 to wallets with unreported update schedules. This number accounts for 2.18% of our total star ratings.

Earn Interest on Crypto Holdings

Some cryptocurrency wallets, like regular bank accounts, allow customers to earn interest on their assets.

A score of 1 was assigned to wallets that allow users to earn interest on their cryptocurrency holdings, while a score of 0 was assigned to wallets that do not. This number accounts for 2.82% of our total star ratings.

Staking Option

Proof-of-stake (POS) enables cryptocurrency owners to confirm block transactions based on the amount of coins staked by a validator. POS, which was developed as an alternative to Proof-of-Work (POW), is viewed as less dangerous in terms of the possibility of a network assault and provides another means for cryptocurrency owners to generate passive income on their holdings.

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A score of 1 was assigned to wallets that allow users to earn interest on their cryptocurrency holdings via staking, while a score of 0 was assigned to wallets that do not. This number accounts for 2.19% of our total star ratings.

Can Buy Crypto

Wallets that allow customers to purchase cryptocurrencies earned a score of 1, while those that did not received a score of 0. This number accounts for 2.85% of our total star ratings.

Can Sell Crypto

Wallets that allow users to sell cryptocurrencies earned a score of 1, while those that did not received a score of 0. This number accounts for 2.41% of our total star rating.

Can swap/exchange/convert Crypto-to-Crypto

A score of 1 was assigned to wallets that allow users to swap/exchange/convert crypto-to-crypto, while a score of 0 was assigned to wallets that do not. This score accounts for 1.95% of our total star ratings.

Privacy and Anonymity

KYC Standards

Know-Your-Customer (KYC) is a security standard used by certain cryptocurrency wallets to assist reduce fraud and money laundering. Wallets that require users to comply with these safeguards generally ask for certain personal information or even a copy of a government-issued picture ID.

Wallets that adhered to KYC criteria earned a score of 1, while those that did not adhere to KYC standards received a score of 0. These ratings contribute for 3.96% of our total star rating.

Transaction Anonymization Method

Wallets that enable users to transact anonymously earned a score of 1, while those that did not received a score of 0. This score accounts for 4.96% of our total star rating.

CoinJoin-Enabled

CoinJoin is a Bitcoin transaction anonymization service. It is a multi-party Bitcoin transaction in which all parties put in and get the same amount of Bitcoin; however, the addresses involved in the transaction are mingled in an attempt to obscure the origin of the funds.

Wallets that implement the CoinJoin anonymization approach scored a 1, while wallets that do not use this strategy obtained a 0. This score accounts for 4.05% of our total star rating.

New Address Generated

Bitcoin addresses are lengthy strings of alphanumeric characters that, like a bank account number, indicate where the bitcoin should be sent. To safeguard a user’s privacy, some wallets produce a new address with each new transaction, preventing a third party from accessing all prior transactions linked with an account.

Wallets that produce a new address for each transaction got a one, whereas wallets that do not do so earned a zero. This score accounts for 4.66% of our total star rating.

Cost and Fees

Since Bitcoin’s launch in 2009, trading and dealing in cryptocurrency has grown in popularity. While transaction costs vary greatly depending on whatever cryptocurrency wallet you use, all of the software wallets we evaluated are completely free to use.

In our assessment, this area contributes for 12.5% of the overall weighted score.

Device/account (one-time) Fee

Wallets that are free to download earned a score of one, whereas wallets that have expenses connected with their construction received a score of zero. This score accounts for 2.08% of our total star rating.

Send (recurring) Fee

Cryptocurrency users transmit crypto instead of cash for a variety of reasons, the most important of which being its simplicity of use, absence of physical boundaries, and anonymity. It is, nevertheless, industry customary for all cryptocurrency owners to be paid a network/mining fee to move their assets, regardless of whose wallet they use. It is critical to note that these fees are paid to the miner for processing crypto transactions and safeguarding the network, not to the wallet firm.

As a result, wallets that just charge network costs scored a 1, whereas wallets that charge extra fees received a 0. This score accounts for 2.08% of our total star rating.

Receive (recurring) Fee

In contrast, cryptocurrency users should not be charged network/mining costs when they are on the receiving end of a transaction. However, some wallets will still charge a premium for this service.

As a result, wallets that do not charge costs for receiving bitcoin obtained a score of one, while wallets that do charge fees received a score of zero. This score accounts for 2.08% of our total star rating.

Can Customize Fee

You may establish custom transaction fees in many wallets on the market now.

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A score of 1 was assigned to wallets that enable users to tailor the fees they wish to pay, while a score of 0 was assigned to wallets that do not have this capacity. This number accounts for 6.25% of our total star ratings.

Customer Support

In the case of a problem or if any account-related concerns emerge, users of bitcoin wallets must be able to contact customer care.

In our assessment, this area accounted for 11.76% of the overall weighted score.

24/7 Customer Support

A score of 1 was given to wallets that provide 24/7 customer assistance, while a score of 0 was given to wallets that do not. This number accounts for 7.74% of our total star ratings.

Number of Support Channels

For this critical category, we investigated each organization to determine whether they provide assistance via the following crucial channels:

  • Help page
  • Chat
  • Ticket system
  • Email
  • Phone

Each wallet is assigned a fractional score for this feature, which is calculated by adding up the number of various support channels accessible to users and dividing that amount by the five potential channels. The Electrum, Mycelium, and Wasabi wallets, for example, all received 0.20 in this category since they only provide support over two of the five potential channels. This number accounts for 4.01% of our total star ratings.

Usability

Compatibility with Hardware

Users’ money are more vulnerable to attack since bitcoin software wallets (“hot” storage) are continually linked to the internet. As a result, we assigned a score of 1 to software wallets that support more secure hardware wallets (“cold” storage), and a score of 0 to wallets that do not. This score accounts for 4.90% of our total star rating.

Cross-Platform

The ability to access their wallet from several user interfaces (UI), such as desktop, online, and mobile, is a crucial feature for many cryptocurrency users, especially those who trade and transact in cryptocurrencies on a daily basis.

Platforms that enable users to access their wallet from all three user interfaces earned a score of one, while wallets that only allow access from two of the three received a score of 0.67, and wallets that only allow access from one UI access point received a score of 0.33. This number accounts for 5.60% of our total star rating.

Shopping for a Cryptocurrency Software Wallet

When searching for the best cryptocurrency wallet for your requirements, it’s a good idea to shop about and compare the many features and degrees of security available in the market. We examined 19 top firms to help you pick the best software wallet for your requirements, and our evaluations are intended to answer your questions so you can make an educated selection.

Cryptocurrency wallets, often known as “blockchain wallets,” serve several functions other than storing digital assets. These wallets may also hold digital treasures such as NFTs, which you may desire to purchase, sell, or trade. They also let users to make and receive digital payments between people, crypto exchanges, and digital marketplaces, as well as transfer digital assets to other users and wallets.

Because of the complexities of digital money, it’s no surprise that we prioritized security while evaluating these organizations. Furthermore, our evaluations go deeply into the other major considerations to consider when buying for a software wallet, such as cost, privacy and anonymity, usability, customer service, and features. Advertisers and partners have no effect on our evaluations, as is usually the case.

Michael Sacchitello

Senior Editor of Investopedia and The Balance’s Trading Platforms

Hannah Kang

Research Manager, Performance Marketing

Hannah has been doing research for over a decade, with a current emphasis on giving data-driven recommendations on services and products in financial, health, and lifestyle by combining quantitative and qualitative data.

Hannah worked as a Research Associate for Fortune 500 firms and worldwide biotech organizations such as Pfizer, Johnson & Johnson, and Takeda before joining the Performance Marketing team. Her experience managing rigorous studies for FDA evaluations established her research integrity standard, which she applies at Performance Marketing.

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